Transcript The future of economics: Re-imagining economic reform

The future of economics:
Reimagining economic reform
Australian Fabians National Policy Conference:
Economics, equity and trust in the twenty first century
Nicholas Gruen
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Background
Australia’s experience is unique.
ALP has been the party of economic reform
Results have exceeded New Zealand, US, UK
– economic growth
– equity
ALP drove reform, not the right
ALP’s reform was in the spirit of Adam Smith
• systematically sympathetic towards the poor
• suspicious of privilege
• persuasion rather than power
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Background
Reform gradually morphed into deregulatory
formula
Now encountering diminishing returns.
Further areas of reform
– rats and mice
• taxis, post, newsagents, pharmacies
– reforming the tax - welfare interface
– health, education and federalism
A new canvass
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Traditional ideas of the economy
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New frontiers: New themes for reform
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Information
Major theme of economics
– since Hayek, Arrow, Stigliz and Akerlof
– Yet little attention to improving information flows.
In workplaces workers compensation premiums are a
good proxy for OHS performance
– should be disclosed to all prospective employees
Job satisfaction could be measured and published by
workplace
– producing a market in job satisfaction
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Information
Information can drive improvements in health and
educational performance.
We should audit the Report on Government Services
Generate and publish information on
– objective performance of
• investment advisors
• real estate agents
– customer satisfaction and error rates of selected other
areas
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Public information on past
performance
Agent 1
Agent 2
Agent 3
Accuracy of past
prognoses
Prognosis
5%
$ 420,000
-2%
$ 415,000
$ 450,000
-15%
Expected
price
$ 441,000
$ 406,700
$ 382,500
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‘Gruen Tenders’
Hospital A
Hospital B
Hospital C
Correction for
Raw
accuracy of past
Prognosis prognoses
-30%
2.0%
25%
4.0%
30%
1.5%
Expected
chance of
adverse event
1.40%
5.00%
1.95%
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Risk
Approaches to government risk are primitive
– Government balance sheets are a residual
Privatisation, fiscal consolidation and
retirement incomes policy has improved
productivity but worsened risk bearing
– foisting risk on private sector is costly
• Sydney’s cross-city tunnel may be a turning
point
– Governments should borrow to invest
• Like families and firms
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Risk
Large risk management agenda sketched out
by Shiller which governments should help
foster risk markets in such things as
• GDP growth
• House prices by suburb
• Employment prospects - by skills
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Law
We only really have a legal system for the rich and
those with access to legal aid
• Otherwise you risk your life savings
We need a legal system which is
• independent
• timely
• cost effective
Legal procedure must ensure legal resources are
commensurate with the magnitude of disputes
Right to pre-emptively forsake appeal
• subject to opponents’ right to appeal on bearing all costs
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Complexity, defaults and simplification
Complexity is a major economic issue
What happens ‘by default’ becomes
increasingly important.
We should simplify life and improve outcomes
for ‘default’ behaviour
– superannuation and investment
– presumption that complex contracts are
reasonable
• a duty to disclose unreasonable provisions
– End tax returns for most employees
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Regulation
Regulation is hugely important
– Debate still bogged down in left-right sloganeering
– No country has done it well
Some ideas
• Regulation is an interface in a complex system
– between government and persons (actual and legal)
• Responsiveness to new ideas, information and needs is crucial
• Rghts to alternative compliance
• We need new institutions to mediate the ‘politics of detail’.
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Macro governance
Rule of law requires independent institutions that cohere
through political changes in government.
– Judiciary
– Monetary policy
And obligations to obtain independent advice
– Industry assistance
If we believe in the power of government to manage the
economy we must develop its independence
– begin with obligations to receive independent fiscal
advice like Victorian Government Auditor General
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Tax
Tax pollution
– greenhouse gases
– congestion
Difficult to establish the debate from Opposition
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Oppositions can initiate change !
The more complex our society the less powerful is, central
‘command and control’
• the more powerful are attitudes and decentralised decisions
Achieving reform from Opposition would be good for
• Australia
• the Opposition, which would be actively building its vision,
rather than just carping from the sidelines.
Areas where one can start from outside government
• Job safety and satisfaction ratings
• Investment advisors keeping public sample portfolios
• Default superannuation
And health and education are with the State Governments!
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What’s reform for?
These ideas can not just help us become richer
Not just help us manage ‘the economy’ and minimise
government expenditure - as worthwhile as those
aims are
They can make important contributions to
– the quality,
– security and
– fairness of our lives
And the fitness of our institutions for their purpose
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